Columbus McKinnon Corporation

Greetings and welcome to the Columbus McKinnon Corporation third quarter fiscal year 2023 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Palowski, Investor Relations for CMCO, Thank you, Ms. Pawlowski. Please go ahead.

Thank you, Donna, and good morning, everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. Joining me here for the quarterly conference call are David Wilson, our president and CEO, and Greg Restowitz, our chief financial officer. You should have a copy of the third quarter fiscal 23 financial results, which we released earlier this morning. And if not, you can access the release, as well as the slides that will accompany our conversation today, on our website at investors.columbusmckinnon.com. David and Greg will provide their formal remarks, after which we will open the lines for questions. If you would turn to slide two in the deck, I'll review the Safe Harbor Statement. You should be aware that we may make some forward-looking statements during the formal discussions as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as other documents filed by the company with Securities and Exchange Commission. You can find those documents on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. So with that, please advance to slide three, and I'll turn the call over to David to begin.

Thanks, Deb, and good morning, everyone. Our results for the quarter demonstrate the steady progress we're making as we execute our plan to transform Columbus-McKinnon into a higher margin, higher growth business. There were several highlights in the quarter. Sales were up 11% on a constant currency basis as we captured price, increased volume to meet demand, and the team successfully reduced past due backlog. Past due backlog was reduced by 16 million, or 28%, as we continued efforts to improve our customers' experience. We expanded operating margins by 170 basis points on a gap basis, and 70 basis points on an adjusted basis. Q3 daily order rates increased 3% sequentially, and order rates in January through last Friday are up nearly 6%. Finally, we are seeing project activity that had stalled in Q3 begin to advance this month. We remain bullish on megatrends that we expect will continue to drive opportunities for us, even against the softening economic backdrop. Global shifts, or I should say geopolitical shifts, transportation and logistics challenges, insufficient supply, and the limitations of available labor are driving investment decisions that support automation, the reshoring of manufacturing, facility upgrades, and expanded operational investment. We continue to strengthen our balance sheet and improve our financial flexibility to execute our strategy. We paid down $30 million in debt through the first nine months of our fiscal year and have brought our net debt leverage ratio to 2.7 times. We also repurchased approximately 31,000 shares at an average price of $32.17 in the quarter. On slide four, I will update you on our strategic progress. As mentioned earlier, growth in the quarter on a constant currency basis was 11%. I believe our new regional leadership team structure contributed to this success. In fact, sales in EMEA were up nearly 12% excluding the impact of FX driven by both price and volume. We also continue to innovate to drive growth and we introduced three new products in the quarter. A new medium duty belted conveyor that fills the gap between our current flagship products and capacity and capabilities. The new line includes many features that provide competitive advantages, including flow accuracy, tracking, and a slim profile. A new four and a half ton hand chain hoist for the general industrial markets. And we pre-launched a next generation wire rope hoist with available frequency drive controlled motion for better speed and position control. This solution offers an easy upgrade path to a digitally connected footprint for diagnostics and remote monitoring. Our NPD N-3 revenue, which we used to measure vitality, was 5% of total revenue on a year-to-date basis and remains ahead of plan. Our most immediate opportunity is improving our customer experience in North America to gain market share and to grow our customer base. We have improved our performance relative to internal customer service metrics, including call wait times, quotation lead times, order entry times, engineered drawing lead times, lead time accuracy, delivery status update accuracy, and past due backlog reduction. We are laser focused on reducing delivery lead times and have created plans for each product that will reduce lead times to competitively advantaged levels. While we are making progress on these initiatives, we are not yet satisfied with the results. I should also mention that in December, we successfully launched and went live with our new ERP system in Mexico. This is consistent with our digital initiatives roadmap and is expected to improve efficiency and enable our teams to be more effective as they address both internal and external customer needs. This also provides the foundation for future enterprise simplification efforts. Despite supply chain headwinds and related production impacts, we continue to expand margins. We have now extracted $7.2 million in annualized costs through the business realignment efforts we initiated earlier this fiscal year. We have realized $4.7 million of these savings in fiscal year 23 and expect the balance to help offset further inflationary pressures in fiscal 24. Rest assured, we're also taking actions to identify additional costs that we can take action on in fiscal 24. We generated $6.5 million in free cash flow in the quarter and are expecting a significant increase in cash from operations in the fourth quarter as we reduce inventory and improve working capital. Slide five depicts our adjusted gross margin progression over the last several years. Since fiscal 18, we have improved gross margin by 310 basis points, and we believe we are on track to achieve our fiscal 27 objectives. As you can see on this slide, there are several levers we will address to achieve our targeted level of approximately 40%. I want to remind you on slide six of where we're heading and why. We're transforming Columbus McKinnon into a leading motion control enterprise for material handling. by leveraging our product portfolio and expanding into secular growth markets. We expect our strategy to shift our mix of business into our product platforms that command higher margins and have greater growth potential. By organizing around these platforms, we are also identifying larger addressable markets, creating more opportunities for us to grow and succeed. With that, let me turn the call over to Greg to discuss our financial results in greater detail.